-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, B5/R+YZIwG6YrmaSqK5eJqx4yCh7NpWQeKFVVB5WxMXQ+3kFllcnMyX/9X4yI5Dv lx62mGTUDvdBVdZMsk3qHw== 0000712537-94-000014.txt : 19940517 0000712537-94-000014.hdr.sgml : 19940517 ACCESSION NUMBER: 0000712537-94-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST COMMONWEALTH FINANCIAL CORP /PA/ CENTRAL INDEX KEY: 0000712537 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 241428528 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11138 FILM NUMBER: 94528850 BUSINESS ADDRESS: STREET 1: OLD COURTHOUSE SQUARE STREET 2: 22 N SIXTH ST CITY: INDIANA STATE: PA ZIP: 15701 BUSINESS PHONE: 4123497220 MAIL ADDRESS: STREET 1: 22 NORTH SIXTH STREET STREET 2: P.O. BOS 400 CITY: INDIANA STATE: PA ZIP: 15701 10-Q 1 3/31/94 10Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C 20549 For the Quarter ended March 31, 1994 Commission file number 0-11242 FIRST COMMONWEALTH FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-1428528 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 22 NORTH SIXTH STREET INDIANA, PA 15701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (412) 349-7220 Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes XX No . Indicate the number of shares outstanding of each of the issuer's classes of common stock. CLASS OUTSTANDING AT May 12, 1994 Common Stock, $1 Par Value 18,642,024 Shares FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Included in Part I of this report: PAGE First Commonwealth Financial Corporation and Subsidiaries Consolidated Balance Sheets . . . . . 3 Consolidated Statements of Income. . . . . . . . . 4 Consolidated Statements of Changes in Shareholders' Equity . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows. . . . . . . 6 Notes to Consolidated Financial Statements . . . . 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 9 PART II - OTHER INFORMATION Other Information . . . . . . . . . . . . . . . . . . . . . . 15 Signatures . . . . . . . . . . . . . . . . . . . . Signature Page FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands) March 31, December 31, 1994 1993 ASSETS Cash and due from banks.............. $ 50,976 $ 51,044 Interest-bearing bank deposits....... 595 2,569 Federal funds sold .................. 1,430 0 Securities available for sale........ 462,195 465,224 Investment securities (Market Value $367,603 in 1994 and $383,943 in 1993).................. 373,567 381,811 Loans (all domestic)................. 1,062,440 1,037,675 Less unearned income............... 30,712 31,499 Less reserve for possible loan losses 14,886 14,544 Net loans....................... 1,016,842 991,632 Property and equipment............... 22,189 21,911 Other real estate owned.............. 2,758 4,929 Other assets......................... 42,081 36,149 TOTAL ASSETS.................... $1,972,633 $1,955,269 LIABILITIES Deposits (all domestic): Noninterest-bearing................ $ 167,170 $ 167,306 Interest-bearing................... 1,423,545 1,408,318 Total deposits.................. 1,590,715 1,575,624 Short-term borrowings................ 174,471 171,497 Other liabilities.................... 16,448 14,332 Long-term debt....................... 7,911 7,363 Total liabilities............... 1,789,545 1,768,816 SHAREHOLDERS' EQUITY Preferred stock, $1 par value per share, 3,000,000 shares authorized and unissued....................... -0- -0- Common stock $5 par value per share, 25,000,000 shares authorized and 18,642,024 and 9,321,012 shares issued and outstanding in 1994 and 1993, respectively................. 93,210 46,605 Additional paid-in capital........... -0- 35,296 Retained earnings.................... 98,579 107,417 Unrealized gain (loss) on securities available for sale................. (3,701) 1,584 188,088 190,902 Deferred compensation................ (5,000) (4,449) Total shareholders' equity......... 183,088 186,453 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......... $1,972,633 $1,955,269 The accompanying notes are an integral part of these consolidated financial statements. 3 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands except per share data) For the 3 Months Ended March 31, 1994 1993 Interest Income Interest and fees on loans........ $21,021 $21,695 Interest and dividends on investments: Taxable interest................ 10,214 10,057 Interest exempt from federal income taxes................... 871 810 Dividends....................... 226 151 Interest on federal funds sold.... 8 103 Interest on bank deposits......... 20 199 Total Interest Income.......... 32,360 33,015 Interest Expense Interest on deposits.............. 12,759 13,794 Interest on short-term borrowings. 1,522 663 Interest on long-term debt........ 106 115 Total Interest Expense......... 14,387 14,572 Net interest income................. 17,973 18,443 Provision for possible loan losses 539 593 Net interest income after provision for possible loan losses.......... 17,434 17,850 Other Income Securities gains.................. 213 657 Trust income...................... 630 603 Service charges on deposits....... 1,146 1,184 Other income...................... 830 542 Total Other Income............. 2,819 2,986 Other Expenses Salaries and employee benefits.... 6,649 6,322 Net occupancy expense............. 971 936 Furniture and equipment expense... 865 784 FDIC expense...................... 889 884 Other operating expenses.......... 3,558 3,711 Total Other Expenses........... 12,932 12,637 Income before taxes and cumulative effect of change in accounting method............................ 7,321 8,199 Applicable income taxes........... 2,191 2,360 Income before cumulative effect of change in accounting method....... 5,130 5,839 Cumulative effect of change in method of accounting for income taxes.... -0- 500 Net Income.......................... $ 5,130 $ 6,339 Average Shares Outstanding.......... 18,642,024 18,642,024 Per Share Data: Net income before effect of change in accounting method.............. $0.28 $0.32 Cumulative effect of change in method of accounting for income taxes............................. $0.00 $0.02 Net income.......................... $0.28 $0.34 Cash dividends per share............ $0.14 $0.125 The accompanying notes are an integral part of these consolidated financial statements. 4 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) (Dollars in thousands)
Unrealized Gain (loss) Additional on Securities Total Common Paid-in Retained Available Deferred Shareholders' Stock Capital Earnings For Sale Compensation Equity Balance at December 31, 1992.... $46,605 $35,455 $93,256 $ -0- $(4,913) $170,403 Net income.................... -0- -0- 6,339 -0- -0- 6,339 Cash dividends declared....... -0- -0- (2,143) -0- -0- (2,143) Cash dividends declared by subsidiary prior to merger.. -0- -0- (56) -0- -0- (56) Decrease in deferred compensation -0- -0- -0- -0- 179 179 Discount on dividend reinvestment plan purchases.............. -0- (40) -0- -0- -0- (40) Balance at March 31, 1993....... $46,605 $35,415 $97,396 $ -0- $(4,734) $174,682 Balance at December 31, 1993.... $46,605 $35,296 $107,417 $ 1,584 $(4,449) $186,453 Net income.................... -0- -0- 5,130 -0- -0- 5,130 Cash dividends declared....... -0- -0- (2,610) -0- -0- (2,610) Transfer to reflect 2-for-1 stock split effected in the form of a 100% stock dividend.................... 46,605 (35,258) (11,347) -0- -0- -0- Change in unrealized gain (loss) on securities available for sale, net of tax effect............... -0- -0- -0- (5,285) -0- (5,285) Increase in deferred compensation -0- -0- -0- -0- (551) (551) Discount on dividend reinvestment plan purchases.............. -0- (38) (11) -0- -0- (49) Balance at March 31, 1994....... $93,210 $ -0- $98,579 $(3,701) $(5,000) $183,088
The accompanying notes are an integral part of these consolidated financial statements. 5 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) For the 3 Months Ended March 31, 1994 1993 Operating Activities Net income....................................... $ 5,130 $ 6,339 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses............ 539 593 Depreciation and amortization................. 1,239 1,081 Net gains on sales of assets.................. (277) (670) Increase in interest receivable............... (1,125) (913) Decrease in interest payable.................. (126) (169) Increase in income taxes payable.............. 1,907 2,473 Provision for deferred taxes.................. 478 (594) Other(net).................................... (442) (2,281) Net cash provided by operating activities... 7,323 5,859 Investing Activities Proceeds from investment securities transactions: Sales......................................... 43,329 39,402 Maturities and redemptions.................... 57,181 70,151 Proceeds from sales of loans and other assets.... 3,306 3,089 Net decrease in time deposits with banks......... 1,974 2,378 Purchases of investment securities............... (97,368) (176,707) Net increase in loans............................ (28,286) (28,039) Purchase of premises and equipment............... (1,624) (806) Net cash used by investing activities.......... (21,488) (90,532) Financing Activities Repayments of long-term debt..................... (3) (2) Discount on dividend reinvestment plan purchases. (49) (40) Dividends paid................................... (2,516) (2,143) Dividends paid by subsidiary prior to merger..... -0- (56) Net increase (decrease) in deposits.............. 15,121 (8,068) Net increase in federal funds purchased.......... 7,837 21,410 Net increase (decrease) in other short-term borrowings..................................... (4,863) 20,491 Net cash provided by financing activities... 15,527 31,592 Net increase (decrease) in cash and cash equivalents.......................... 1,362 (53,081) Cash and cash equivalents at January 1............. 51,044 93,892 Cash and cash equivalents at March 31.............. $52,406 $40,811 The accompanying notes are an integral part of these consolidated financial statements. 6 FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1994 (Unaudited) NOTE 1 Management Representation In the opinion of management, the unaudited interim consolidated financial statements include all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of financial position as of March 31, 1994 and the results of operations for the three month periods ended March 31, 1994 and 1993, and statements of cash flows and changes in shareholders' equity for the three month periods ended March 31, 1994 and 1993. The results of the three months ended March 31, 1994 and 1993 are not necessarily indicative of the results to be expected for the entire year. The interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements of First Commonwealth Financial Corporation and Subsidiaries, including the notes thereto. NOTE 2 Reserve For Possible Loan Losses (in thousands) 1994 1993 Reserve balance January 1.................. $14,544 $14,267 Additions: Provision charged to operating expenses 539 593 Recoveries of previously charged off loans................................ 405 454 Deductions: Loans charged off...................... 602 912 Reserve balance March 31................... $14,886 $14,402 NOTE 3 Cash Flow Disclosures (dollar amounts in thousands) Cash paid during the first three months of the year for interest and income taxes were as follows: 1994 1993 Interest $14,513 $14,811 Income Taxes $ -0- $ -0- During 1994 the Corporation borrowed $730 and concurrently loaned this amount to the ESOP Trust on identical terms. ESOP loan payments of $179 were made by the ESOP Trust during the respective 1994 and 1993 periods, thereby resulting in outstanding amounts related to deferred compensation of $5,000 at March 31, 1994 and $4,734 at March 31, 1993. 7 FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) March 31, 1994 (Unaudited) NOTE 4 Change of Accounting Method The Corporation adopted Statement of Financial Accounting Standards No. 109 ("FAS No. 109"), "Accounting for Income Taxes", effective January 1, 1993. FAS No. 109 is an asset and liability approach for financial accounting and reporting for income taxes. The effect of adopting FAS No. 109 resulted in a cumulative benefit of $500 thousand in the first quarter of 1993. NOTE 5 Proposed Business Combination On March 25, 1994, the Corporation entered into a definitive agreement to merge United National Bancorporation and its subsidiaries ("United") into the Corporation. Under the terms of the Agreement and Plan of Reorganization, the holders of shares of United common stock will receive two shares of the Corporation's common stock for each share of United common stock. The transaction is expected to be accounted for as a pooling of interests. United was organized as a Pennsylvania business corporation established in 1982 for the purposes of operating as a bank holding company. United is headquartered in Chambersburg, Pennsylvania with two active Subsidiaries. Unitas National Bank, a national banking association, headquartered in Chambersburg, Pennsylvania and Unitas Mortgage Corporation, having its principal place of business in Carlisle, Pennsylvania, and is engaged in the origination of mortgages for the secondary market. Total assets of United were $148 million serviced through eleven community offices. The proposed transaction requires the approval of the shareholders of United and approval of the appropriate regulatory agencies. On April 21, 1994 the Corporation entered into a definitive agreement to merge Reliable Financial Corporation ("Reliable") into the Corporation. Under the terms of the Agreement and Plan of Reorganization, the holders of shares of Reliable common stock will receive 1.6 shares of the Corporation's common stock for each share of Reliable common stock. The transaction is expected to be accounted for as a pooling of interests. Reliable is a holding company which was established in 1991 for the purpose of owning 100% of the outstanding common stock of Reliable Savings Bank, PaSA. Reliable Savings Bank, PaSA is a Pennsylvania-chartered savings and loan association, headquartered in Bridgeville, Pennsylvania with total assets of $146 million serviced through three community offices. Reliable shares are traded on the NASDQ National Market System under the symbol "RESB". The proposed transaction requires the approval of the shareholders of Reliable and approval of the appropriate regulatory agencies. 8 ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Effective December 31, 1993, the Corporation acquired Peoples Bank of Western Pennsylvania ("PBWPA"), a Pennsylvania-chartered bank. The merger was accounted for as a pooling of interests and accordingly, all financial statements have been restated as though the merger had occurred at the beginning of the earliest period presented. Average number of shares has been restated for the 1993 periods to reflect the two-for-one stock split effected in the form of a 100% stock dividend declared on January 18, 1994. First Three Months of 1994 as Compared to the First Three Months of 1993 Net income in the three months of 1994 was $5.1 million, a decrease of $709 thousand from the 1993 period before the change in the method of accounting for income taxes which added $500 to the 1993 amount. Earnings per share was $0.28 during the three months of 1994 compared to $0.34 during the 1993 period. Earnings per share during the 1993 period was $0.32 before the effect of change in the method of accounting for income taxes. Return on average assets was 1.06% and return on average equity was 10.99% during the 1994 period, compared to 1.44% and 14.76%, respectively during the same period of 1993. Included in the 1993 period results was the change in accounting method which added 11 basis points (0.11%) to the return on average assets and 116 basis points (1.16%) to the return on average equity for 1993. Net interest income, the most significant component of earnings, is the amount by which interest generated from earning assets exceeds interest expense on liabilities. Net interest income for the 1994 period was $18.0 million compared to $18.4 million during the same time period in 1993. Interest income, on a tax- equivalent basis, decreased 90 basis points (0.90%) as a percentage of average earning assets to 7.19% in 1994, from 8.09% in the 1993 period. This represented a decline in all categories of interest earning assets, reflecting lower rates in general. Mortgage borrowers had been refinancing loans during the lower rate environment existing in 1993 resulting in a decline in yields that carried forward into 1994. Mortgage loan refinancings on a national scale had accelerated the repayments of mortgage backed securities. As proceeds were reinvested in securities yielding lower rates, portfolio yields declined. The recent rise in interest rates should stabilize prepayments of the portfolio. The cost of funds was 3.65% and 4.06% in the three months of 1994 and 1993, respectively as deposit costs, the predominant category of interest-bearing liabilities, decreased only 37 basis points (0.37%) to 3.28%. This was expected as deposit customers tended to extend 9 ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) First Three Months of 1994 as Compared to the First Three Months of 1993 (Continued) maturities over the previous 18 months as interest rates declined, thereby preventing the cost of funds to decline as fast as asset yields. Although interest yields and costs of funds have continued to decline during the first quarter of 1994, the decline has slowed. Net interest income on a tax-equivalent basis was 4.06% of earning assets during 1994, compared to 4.61% in the 1993 related period. Average earning assets were 95.1% of average total assets in the 1994 period and 94.9% during the 1993 time frame. Average interest-bearing liabilities increased as a percentage of average total assets to 81.5% in the three months of 1994 and 81.3% during the 1993 period. Provision for possible loan losses was $539 thousand in 1994, compared to $593 thousand in the three month period of 1993. Net charge-offs against the reserve for possible loan losses were $197 thousand in the 1994 period and can be compared to $458 thousand during the 1993 period. Nonperforming loans were 1.50% of loans at March 31, 1994 compared to 1.52% of loans at March 31, 1993. Nonperforming loans include loans past due 90 days or more, loans on a nonaccrual basis and renegotiated loans. Other operating income decreased $167 thousand in 1994 to $2.8 million. Net security gains decreased $444 thousand. During the 1994 period, U.S. Treasury securities and U.S. Government agency securities totaling $43.1 million with remaining maturities of one year or less were sold and reinvested in similar securities with maturities of 3-5 years. These securities were classified as "securities available for sale" in accordance with Financial Accounting Standards Board Statement No. 115. Other income increased $288 thousand in the 1994 period primarily as the gain on the sale of loans and other assets increased. Income from the credit life reinsurance joint venture increased as did service charges on club accounts. Increased consumer loan volumes will tend to improve the income from credit life reinsurance. Fees related to club accounts should tend to level out since customer promotions occurred during the previous two quarters. Noninterest expense was $12.9 million in the three months of 1994 which reflected an increase of $295 thousand over the 1993 period. Employee costs were $6.6 million in 1994, an increase of $327 thousand over the 1993 related period. Employee costs (annualized) as a percentage of average assets was 1.38% in the 1994 period, reduced from 1.43% (annualized) in the 1993 period. Furniture and equipment expense increased primarily as a result of increased depreciation on computer equipment acquired to 10 ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) First Three Months of 1994 as Compared to the First Three Months of 1993 (Continued) automate new customer loan and deposit processes. Other operating expenses decreased $153 thousand to $3.6 million in the three months of 1994 when compared to the 1993 related period as loan collection costs and professional fees decreased. Loan collection costs should continue to be favorable throughout the remainder of the year. Professional fees are expected to increase as pending acquisitions progress. Federal income tax expense was $2.2 million during the three months of 1994 compared to $2.4 million during the 1993 related period. Income before taxes decreased $878 thousand in the 1994 period as compared to the same time period of 1993. Taxable income decreased only $519 thousand as tax-free income reduced $359 thousand. LIQUIDITY Liquidity is a measure of the Corporation's ability to meet normal cash flow requirements of both borrowers and depositors efficiently. In the ordinary course of business, funds are generated from deposits (primary source), and maturity or repayment of earning assets, such as securities and loans. As an additional secondary source, short-term liquidity needs may be provided through the use of overnight federal funds purchased and borrowings from the Federal Reserve Bank. Additionally, each of the subsidiary banks are members of the Federal Home Loan Bank and may borrow up to ten percent of their total assets at any one time. Net loans increased $25.2 million in the three months of 1994 as all major categories of loans increased. Total deposits increased $15.1 million, mostly as time deposits increased. Time deposits in denominations of $100 thousand or more remained stable, indicating that the growth is primarily from core customer relationships. Investment securities held to maturity declined $8.2 million through maturities and repayments. Federal funds sold increased $1.4 million and interest-bearing bank deposits declined $2.0 million while short-term borrowings increased $3.0 million. An additional source of liquidity are certain marketable securities that the Corporation holds in its investment portfolio. These securities are classified as "securities available for sale". While the Corporation does not have specific intentions to sell these securities, they may be sold for the purpose of obtaining future liquidity, for management of interest rate risk or as part of the implementation of tax management strategies. As of March 31, 1994 securities available for sale had an amortized cost of $467.9 million and an approximate market value of $462.2 million. Securities available for sale decreased $3.0 million in 1994, primarily as the market values declined with rising interest rates. 11 ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Interest Sensitivity The objective of interest rate sensitivity management is to maintain an appropriate balance between the stable growth of income and the risks associated with maximizing income through interest sensitivity imbalances. While no single number can accurately describe the impact of changes in interest rates on net interest income, interest rate sensitivity positions, or "gaps", when measured over a variety of time periods, may be helpful. An asset or liability is considered to be interest-sensitive if the rate it yields or bears is subject to change within a predetermined time period. If interest-sensitive assets ("ISA") exceeds interest-sensitive liabilities ("ISL") during a prescribed time period, a positive gap results. Conversely, when ISL exceeds ISA during a time period, a negative gap results. A positive gap tends to indicate that earnings will be impacted favorably if interest rates rise during the period and negatively when interest rates fall during the time period. A negative gap tends to indicate that earnings will be affected inversely to interest rates changes. In other words, as interest rates fall, a negative gap should tend to produce a positive effect on earnings and when interest rates rise, a negative gap should tend to affect earnings negatively. The primary components of ISA include adjustable rate loans and investments, loan repayments, investment maturities and money market investments. The primary components of ISL include maturing certificates of deposit, money market deposits, savings deposits, N.O.W. accounts and short-term borrowings. The following table lists the amounts and ratios of assets and liabilities with rates or yields subject to change within the periods indicated as of March 31, 1994 and December 31, 1993.
March 31, 1994 December 31, 1993 0-90 0-180 0-365 0-90 0-180 0-365 DAYS DAYS DAYS DAYS DAYS DAYS Interest-sensitive assets $ 542,219 $ 649,561 $ 865,416 $ 549,123 $ 671,962 $ 872,212 Interest-sensitive liabilities 819,396 918,560 1,040,865 819,293 947,252 1,076,855 Gap $(277,177) $(268,999) $ (175,449) $(270,170) $(275,290) $(204,643) ISA/ISL 0.66 0.71 0.83 0.67 0.71 0.81 Gap/Total assets 14.05% 13.64% 8.89% 13.82% 14.08% 10.47%
The Corporation has not experienced the kind of earnings volatility indicated from the gap analysis. This is because assets and liabilities with similar contractual repricing characteristics may not reprice at the same time or to the same degree. 12 ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Interest Sensitivity (continued) Therefore, to more precisely measure the impact of interest rate changes on the Corporation's net interest income, management simulates the potential effects of changing interest rates through computer modeling. The Corporation is then better able to implement strategies which would include an acceleration of a deposit rate reduction or a lag in a deposit rate increase. The repricing strategies for loans would be inversely related. The analysis at March 31, 1994, indicated that a 200 basis point movement in interest rates in either direction over the next twelve months would not have a significant impact on the Corporation's anticipated net interest income over that time frame. Rising interest rates should tend to have a favorable impact, while declining rates will tend to affect net interest income negatively. CREDIT QUALITY RISK The following table identifies amounts of loan losses and nonperforming loans. Past due loans are those which were contractually past due 90 days or more as to interest or principal payments. Renegotiated loans are those which terms had been renegotiated to provide a reduction or deferral of principal or interest as a result of the deteriorating financial position of the borrower and are in compliance with the restructured terms. At March 31, 1994 1993 (amounts in thousands) Nonperforming Loans: Loans in nonaccural status $ 8,689 $ 7,294 Past due loans 6,176 3,537 Renegotiated loans 604 4,206 Total nonperforming loans $ 15,469 $ 15,037 Other real estate owned (including in-substance foreclosures) $ 2,758 $ 4,929 Loans outstanding at end of period $1,031,728 $989,102 Average loans outstanding (year-to-date) $1,016,546 $975,764 Nonperforming loans as percent of total loans 1.50% 1.52% Provision for possible loan losses $ 539 $ 593 Net charge-offs $ 197 $ 458 Net charge-offs as percent of average loans 0.02% 0.05% Provision for possible loan losses as percent of net charge-offs 273.6% 129.5% Reserve for possible loan losses as percent of average loans outstanding 1.46% 1.48% 13 ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) CAPITAL RESOURCES Equity capital decreased $3.4 million in 1994. Earnings retention was $2.5 million, representing an earnings retention rate of 49.1%. The retained net income remains in permanent capital to fund future growth and expansion. Stock purchased by the Employee Stock Ownership Plan (the "ESOP"), subject to the debt of the Corporation, reduced equity by $730 thousand while the loan repayment by the ESOP of debt guaranteed by the Corporation increased equity by $179 thousand. Amounts paid to fund the discount on reinvested dividends reduced equity by $49 thousand. The market value adjustment to securities available for sale reduced equity by $5.3 million resulting from market values declining as interest rates increased. A capital base can be considered adequate when it enables the Corporation to intermediate funds responsibly and provide related services, while protecting against future uncertainties. The evaluation of capital adequacy depends on a variety of factors, including asset quality, liquidity, earnings history and prospects, internal controls and management caliber. In consideration of these factors, management's primary emphasis with respect to the Corporation's capital position is to maintain an adequate and stable ratio of equity to assets. The Federal Reserve Board issued risk-based capital adequacy guidelines which are designed principally as a measure of credit risk. These guidelines require: (1) at least 50% of a banking organization's total capital be common and other "core" equity capital ("Tier I Capital"); (2) assets and off-balance-sheet items must be weighted according to risk; (3) the total capital to risk-weighted assets ratio be at least 8%; and (4) a minimum leverage ratio of Tier I capital to average total assets. The minimum leverage ratio is not specifically defined, but is generally expected to be 4-5 percent for all but the most highly rated banks, as determined by a regulatory rating system. As of March 31, 1994, the Corporation had a Tier I Capital to risk- weighted assets ratio and total capital to risk-weighted assets ratio of 15.96% and 17.25%, respectively and a minimum leverage ratio of 8.77%. 14 FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES Effective April 23, 1994 Article 5 of the Corporation's Articles of Incorporation has been amended to authorize the creation of an additional 75,000,000 shares of Common Stock, and change the Common Stock of the Corporation by changing each issued and outstanding share of Common Stock, par value of $5 per share, into one share of Common Stock, par value of $1 per share. Revised Articles of Incorporation are included herein as Exhibit 3(i). ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) On April 23, 1994 the Corporation held its regularly scheduled annual meeting of shareholders. Represented by proxy, or in person was 13,229,728 shares of the 18,642,024 shares outstanding. (b) The following directors were re-elected for terms to expire in 1997: E. H. Brubaker A. B. Hallstrom Thomas J. Hanford H. H. Heilman, Jr. Charles J. Szesczyk John I. Whally, Jr. (c) The shareholders voted 12,708,099 shares in the affirmative, 367,922 in the negative and 153,707 shares abstained to amend Article 5 of the Corporation's Article of Incorporation to authorize the creation of an additional 75,000,000 shares of Common Stock, and to change the Common Stock of the Corporation by changing each issued and outstanding share of Common Stock, par value $5 per share, into one share of Common Stock, par value of $1 per share. 15 FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES PART II - OTHER INFORMATION (Continued) ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit Number Exhibit Page 3 (i) Amended Articles of Incorporation 18 b) Reports on Form 8-K (i) Form 8-K dated March 14, 1994 reporting that the Corporation entered into a letter of intent to acquire Reliable Financial Corporation. (ii) Form 8-K dated April 21, 1994 reporting that the Corporation entered into a definitive agreement to acquire Reliable Financial Corporation. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST COMMONWEALTH FINANCIAL CORPORATION (Registrant) DATED: MAY 12, 1994 /S/ E. James Trimarchi E. James Trimarchi, Chairman of the Board, President and Chief Executive Officer DATED: MAY 12, 1994 /S/ John J. Dolan John J. Dolan, Sr. Vice President, Comptroller, and Chief Financial Officer 17 EX-3 2 EX-3(A) ARTICLES OF INCORPORATION EXHIBIT 3(i) ARTICLES OF INCORPORATION As Amended 23 April 1994 OF FIRST COMMONWEALTH FINANCIAL CORPORATION In compliance with the requirements of section 204 of the Business Corporation Law, act of May 5, 1933 (P.L. 364) (15 P.S. 1204) the undersigned, desiring to be incorporated as a business corporation, hereby certifies (certify) that: 1. The name of the corporation is: First Commonwealth Financial Corporation. 2. The location and post office address of the initial registered office of the corporation in this Commonwealth is: 601 Philadelphia Street, Indiana, Pennsylvania, 15701. 3. The corporation is incorporated under the Business Corporation Law of the Commonwealth of Pennsylvania for the following purpose or purposes: To have unlimited power to engage in and do any lawful act concerning any or all lawful business for which corporations may be incorporated under the provisions of the Business Corporation Law of the Commonwealth of Pennsylvania. The corporation is incorporated under the provisions of the Business Corporation Law of the Commonwealth of Pennsylvania (act of May 5, 1933, P.L. 364) (15 P.S. 1204, as amended). 4. The term for which the corporation is to exist is: perpetual. 5. The aggregate number of shares that the corporation shall have authority to issue is 3,000,000 shares of Preferred Stock, par value $1 per share (the "Preferred Stock"), and 100,000,000 shares of Common Stock, par value $1 per share (the "Common Stock"). The Board of Directors shall have the full authority permitted by law to divide the authorized and unissued shares of Preferred Stock into classes or series, or both, and to determine for any such class or series its designation and the number of shares of the class or series and the voting rights, preferences, limitations and special rights, if any, of the shares of the class or series. 6. The name(s) and post office address(es) of each incorporator(s) and the number and class of shares subscribed by such incorporator(s) is (are): 18 Number and Name Address Class of Shares E. James Trimarchi 601 Philadelphia St. 1 Share Common Indiana, PA 15701 7. Except as otherwise provided in Section 902.1 (Merger Without Shareholder Approval) of the Pennsylvania Business Corporation Law (or the corresponding provisions of any future Pennsylvania corporate law), no merger, consolidation, liquidation or dissolution of the corporation nor any action that would result in the sale or other disposition of all or substantially all of the assets of the corporation shall be valid unless first approved by the affirmative vote of the holders of at least seventy-five percent (75%) of the outstanding shares of Common Stock. This Article 7 may not be amended unless first approved by the affirmative vote of the holders of at least seventy-five percent (75%) of outstanding shares of Common Stock. 8. Cumulative voting rights shall not exist with respect to the election of directors. 9. (a) The Board of Directors may, if it deems it advisable, oppose a tender or other offer for the corporation's securities, whether the offer is in cash or in the securities of a corporation or otherwise. When considering whether to oppose an offer, the Board of Directors may, but is not legally obligated to, consider any or all of the following: (i) Whether the offer price is acceptable based on the historical and present operating results or financial condition of the corporation; (ii) Whether a more favorable price could be obtained for the corporation's securities in the future; (iii) The impact which an acquisition of the corporation would have on the employees, depositors and customers of the corporation and its subsidiaries and the communities which they serve; (iv) The reputation and business practices of the offeror and its management and affiliates as they would affect the employees, depositors and customers of the corporation and its subsidiaries and the future value of the corporation's stock; 19 (v) The value of the securities (if any) which the offeror is offering in exchange for the corporation's securities based on an analysis of the worth of the corporation as compared to the corporation or other entity whose securities are being offered; and (vi) Any antitrust or other legal and regulatory issues that are raised by the offer. (b) If the Board of Directors determines that an offer should be rejected, it may take any lawful action to accomplish its purpose, including, but not limited to, any or all of the following: advising shareholders not to accept the offer; litigation against the offeror; filing complaints with all governmental and regulatory authorities; acquiring the corporation's securities; selling or otherwise issuing authorized but unissued securities or treasury stock or granting options with respect thereto; acquiring a company to create an antitrust or other regulatory problem for the offeror and obtaining a more favorable offer from another individual or entity. 20 -----END PRIVACY-ENHANCED MESSAGE-----